AGREEMENT AND PLAN OF MERGER
by and among
LUMOS ANALYTICS INC., a Delaware corporation,
PRISMYX ACQUISITION SUB LLC, a Delaware limited liability company,
PRISMYX DATA SOLUTIONS LLC, a Delaware limited liability company,
JONAH EBERHARDT,
and
TALIA MESSINA
Dated as of
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of , by and among Lumos Analytics Inc., a Delaware corporation ("Buyer"), Prismyx Acquisition Sub LLC, a Delaware limited liability company and a wholly owned subsidiary of Buyer ("Merger Sub"), Prismyx Data Solutions LLC, a Delaware limited liability company (the "Company"), Jonah Eberhardt, an individual ("Eberhardt"), and Talia Messina, an individual ("Messina," and together with Eberhardt, the "Sellers," and each individually, a "Seller"). Buyer, Merger Sub, the Company, and the Sellers are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Buyer is a Delaware corporation, headquartered at 450 Mission Street, Suite 2200, San Francisco, California 94105, engaged in the business of providing AI-driven analytics and data intelligence tools to enterprises (EIN: 83-2941076);
WHEREAS, Merger Sub is a Delaware limited liability company (EIN: 93-4218560) newly formed by Buyer as a wholly owned direct subsidiary of Buyer for the sole purpose of effecting the Merger (as defined below), with its registered agent at Capitol Registered Agents, Inc., 1209 Orange Street, Wilmington, Delaware 19801;
WHEREAS, the Company is a Delaware limited liability company (EIN: 86-1537842), headquartered at 1414 Walnut Street, Suite 310, Philadelphia, Pennsylvania 19102, engaged in the business of developing and marketing the "PrismLens" analytics plugin suite for financial data visualization;
WHEREAS, the Sellers collectively own all of the issued and outstanding membership interests of the Company, consisting of one thousand (1,000) membership units (Eberhardt: five hundred fifty (550) units, representing fifty-five percent (55%) of the total outstanding membership interests; Messina: four hundred fifty (450) units, representing forty-five percent (45%) of the total outstanding membership interests);
WHEREAS, the Parties desire to effect a business combination through a forward merger of the Company with and into Merger Sub pursuant to the Delaware Limited Liability Company Act (6 Del. C. § 18-101 et seq.) (the "DLLCA"), specifically Section 18-209 thereof, with Merger Sub surviving as a wholly owned subsidiary of Buyer (the "Merger");
WHEREAS, the aggregate consideration for the Merger consists of Fifteen Million Dollars ($15,000,000), composed of Ten Million Five Hundred Thousand Dollars ($10,500,000) in closing cash consideration and up to Four Million Five Hundred Thousand Dollars ($4,500,000) in , in each case subject to the adjustments and conditions set forth herein;
WHEREAS, the respective boards of directors, managers, and/or members of Buyer, Merger Sub, and the Company have each approved this Agreement and the transactions contemplated hereby in accordance with applicable law and their respective organizational documents;
WHEREAS, the Board of Directors of Buyer, including at least one (1) director designated by Ridgeline Capital Partners, LP, has approved the transactions contemplated hereby in accordance with the Amended and Restated Stockholders' Agreement of Lumos Analytics Inc. dated as of August 12, 2021 (the "Lumos Stockholders' Agreement");
WHEREAS, the Sellers, as the holders of all of the outstanding membership interests of the Company, have approved the Merger and this Agreement by written consent executed in accordance with the Company LLC Agreement and the DLLCA; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Acquisition Proposal" means any inquiry, proposal, or offer from any Person (other than Buyer or its Affiliates) relating to any (a) direct or indirect acquisition of all or any material portion of the assets of the Company, (b) direct or indirect acquisition of any equity interests of the Company, (c) merger, consolidation, business combination, recapitalization, liquidation, dissolution, or similar transaction involving the Company, or (d) any other transaction the consummation of which would reasonably be expected to prevent, materially delay, or materially impair the ability of the Sellers or the Company to consummate the Merger.
"Actual Closing Net Working Capital" means the Net Working Capital of the Company as of the Closing Date, determined in accordance with Section 2.7.
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
"Aggregate Consideration" means, collectively, the Closing Cash Consideration and the maximum Earnout Consideration, aggregating to Fifteen Million Dollars ($15,000,000).
"Agreement" has the meaning set forth in the preamble hereto.
"Accounting Referee" means an independent accounting firm of national or regional reputation mutually agreed upon by Buyer and the Sellers, and if the parties cannot agree within five (5) Business Days after a dispute is submitted for resolution, the Accounting Referee shall be Tindall Tanaka CPAs LLP.
"Ardent Consent" means the consent of Ardent Financial Technologies, Inc. required under the Ardent SaaS Agreement in connection with the change of control of the Company, in form and substance reasonably satisfactory to Buyer.
"Ardent SaaS Agreement" means that certain Master SaaS Agreement dated as of March 15, 2021, by and between the Company and Ardent Financial Technologies, Inc., as amended.
"Basket Amount" means of the Aggregate Consideration.
"Business Day" means any day that is not a Saturday, Sunday, or other day on which commercial banks in New York, New York or Philadelphia, Pennsylvania are authorized or required by law to remain closed.
"Buyer" has the meaning set forth in the preamble hereto.
"Buyer Indemnified Parties" means Buyer, Merger Sub, the Surviving Entity, and their respective officers, directors, managers, members, employees, agents, Affiliates, successors, and assigns.
"Cause" has the meaning set forth in the applicable Employment Agreement.
"Certificate of Merger" means the certificate of merger to be filed with the Secretary of State of the State of Delaware in connection with the Merger, substantially in the form attached hereto as Exhibit D.
"Closing" means the consummation of the transactions contemplated by this Agreement.
"Closing Cash Consideration" means Ten Million Five Hundred Thousand Dollars ($10,500,000).
"Closing Date" means the date on which the Closing occurs.
"Closing Statement" has the meaning set forth in Section 2.7(c).
"Code" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
"Company" has the meaning set forth in the preamble hereto.
"Company intellectual Property" means all intellectual Property owned or purported to be owned by the Company, including PrismLens, all patents and patent applications, all registered and unregistered trademarks, all copyrights, all trade secrets, and all domain names.
"Company LLC Agreement" means that certain Amended and Restated Limited Liability Company Agreement of Prismyx Data Solutions LLC, dated as of September 1, 2020, by and among the Sellers, as the members of the Company, as amended from time to time.
"De Minimis Amount" means , with respect to any individual claim for indemnification.
"DLLCA" means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq., as amended from time to time.
"Disclosure Schedules" means the disclosure schedules delivered by the Sellers to Buyer concurrently with the execution and delivery of this Agreement.
"Earnout Consideration" means up to Four Million Five Hundred Thousand Dollars ($4,500,000) in the aggregate, payable in accordance with Section 2.8.
"Earnout Period 1" means the period commencing on the Closing Date and ending on the date that is months following the Closing Date.
"Earnout Period 2" means the period commencing on the date immediately following the last day of Earnout Period 1 and ending on the date that is months following the Closing Date.
"Eberhardt" has the meaning set forth in the preamble hereto.
"Eberhardt Employment Agreement" means the Employment Agreement between the Surviving Entity and Eberhardt, substantially in the form attached hereto as Exhibit B-1.
"Effective Time" means the time at which the Merger becomes effective as specified in the Certificate of Merger in accordance with Section 2.2.
"Employment Agreements" means, collectively, the Eberhardt Employment Agreement and the Messina Employment Agreement.
"Escrow Agent" means Fenwick Escrow Services LLC.
"Escrow Agreement" means the Escrow Agreement among Buyer, the Sellers, and the Escrow Agent, substantially in the form attached hereto as Exhibit A.
"Escrow Amount" means Four Million Five Hundred Thousand Dollars ($4,500,000).
"Escrow Release Date" means the date that is eighteen (18) months after the Closing Date.
"Estimated Net Working Capital" has the meaning set forth in Section 2.7(b).
"Fundamental Representations" means the representations and warranties of the Sellers set forth in Section 3.1 (Organization and Good Standing), Section 3.2 (Authority; Enforceability), Section 3.3 (Capitalization), Section 3.4 (Title to Membership Interests),
"GAAP" means United States generally accepted accounting principles as in effect from time to time, applied on a consistent basis.
"Good Reason" has the meaning set forth in the applicable Employment Agreement.
"Governmental Authority" means any federal, state, provincial, local, municipal, foreign, or other government or governmental or quasi-governmental authority of any nature, including any governmental agency, branch, bureau, department, official, or entity, and any court or other tribunal.
"Indebtedness" means, without duplication, with respect to any Person, (a) all obligations for borrowed money, (b) all obligations evidenced by notes, bonds, debentures, or similar instruments, (c) all obligations under capitalized lease obligations as determined in accordance with GAAP, (d) all obligations under conditional sale or other title retention agreements, (e) all obligations under letters of credit, bankers' acceptances, or similar instruments, (f) all guarantees of obligations described in clauses (a) through (e) of any other Person, and (g) all accrued and unpaid interest, premiums, penalties, and other fees and expenses related to any of the foregoing.
"Indemnification Cap" means of the Aggregate Consideration.
"intellectual Property" means any and all of the following, whether arising under the laws of the United States or any other jurisdiction: (a) patents, patent applications, and patent disclosures, together with all reissues, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; (b) trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith; (c) copyrights, copyrightable works, and all applications, registrations, and renewals in connection therewith; (d) trade secrets, know-how, inventions, processes, techniques, protocols, formulae, models, and methodologies; (e) computer software, including source code, object code, data, databases, and related documentation; (f) internet domain names and uniform resource locators; and (g) all other intellectual property and proprietary rights.
"Knowledge of the Company" or "Sellers' Knowledge" means the actual knowledge of Jonah Eberhardt and Talia Messina, in each case after inquiry of those employees or agents of the Company having direct responsibility for the subject matter to which the applicable representation or warranty relates.
"Lien" means any mortgage, pledge, hypothecation, lien (statutory or otherwise), charge, security interest, encumbrance, claim, community property interest, equitable interest, option, right of first refusal, right of first offer, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership.
"Losses" means any and all losses, damages, liabilities, claims, demands, judgments, awards, penalties, fines, costs, fees, and expenses (including reasonable attorneys' fees and expenses and reasonable costs of investigation, litigation, and enforcement).
"Lumos Stockholders' Agreement" means the Amended and Restated Stockholders' Agreement of Lumos Analytics Inc. dated as of August 12, 2021, among Buyer and the stockholders party thereto, as amended.
"Material Adverse Effect" means any event, circumstance, development, change, occurrence, condition, or effect that, individually or in the aggregate with all other events, circumstances, developments, changes, occurrences, conditions, or effects, (a) is or would reasonably be expected to be materially adverse to the business, assets, liabilities, condition (financial or otherwise), or results of operations of the Company, taken as a whole, or (b) would prevent or materially delay the ability of the Sellers or the Company to consummate the transactions contemplated by this Agreement; provided, however, that, for purposes of clause (a), none of the following, either alone or in combination, shall be deemed to constitute, or shall be taken into account in determining whether there has occurred, a Material Adverse Effect: (i) changes in general economic, regulatory, political, or business conditions, (ii) changes in financial, banking, or securities markets in general, (iii) changes affecting the software-as-a-service or data analytics industry generally, (iv) changes in GAAP or applicable law, (v) the announcement or pendency of the transactions contemplated by this Agreement, (vi) any natural disaster, pandemic, epidemic, act of God, or force majeure event, or (vii) any failure of the Company to meet any internal or published projections, forecasts, or predictions of revenue, earnings, or other financial or operating metrics for any period (provided that the underlying causes of such failure may themselves constitute or be taken into account in determining whether a Material Adverse Effect has occurred, to the extent not otherwise excluded by clauses (i) through (vi)); except, in the case of clauses (i) through (iv) and (vi), to the extent the Company is disproportionately affected thereby as compared to other companies operating in the same industries and markets.
"Material Contract" means any Contract to which the Company is a party or by which any of its assets are bound that (a) involves aggregate annual payments by or to the Company in excess of Fifty Thousand Dollars ($50,000), (b) has a remaining term in excess of twelve (12) months and is not cancelable without penalty on sixty (60) or fewer days' notice, (c) relates to the license, sublicense, or other grant of rights in or to any material Company intellectual Property, (d) contains any non-competition, exclusivity, or most-favored-nation provision, (e) involves any customer representing five percent (5%) or more of the Company's revenue, or (f) is otherwise material to the conduct of the Company's business.
"Membership Interests" means all of the issued and outstanding membership interests of the Company, consisting of one thousand (1,000) membership units.
"Merger" has the meaning set forth in the Recitals.
"Merger Sub" has the meaning set forth in the preamble hereto.
"Messina" has the meaning set forth in the preamble hereto.
"Messina Employment Agreement" means the Employment Agreement between the Surviving Entity and Messina, substantially in the form attached hereto as Exhibit B-2.
"Net New ARR" means the net new annual recurring revenue generated by PrismLens (the Company's product suite) during the applicable measurement period, calculated as new subscription revenue from new customers plus expansion revenue from existing customers, less churned revenue from lost or downgraded customers, during the applicable measurement period, determined in accordance with Section 2.8(c).
"Net Working Capital" has the meaning set forth in Section 2.7(a).
"Order" means any order, decree, ruling, injunction, assessment, attachment, lien, judgment, or award entered by any Governmental Authority.
"Ordinary Course of Business" means the ordinary course of the Company's business consistent with the Company's past custom and practice, including with respect to frequency and amount.
"Outside Date" means , 2024.
"Permitted Liens" means (a) statutory liens for Taxes not yet due and payable or that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP, (b) mechanics', carriers', workers', repairers', and similar statutory liens arising or incurred in the ordinary course of business for amounts that are not yet due and payable or that are being contested in good faith, (c) zoning, entitlement, conservation restriction, and other land-use and environmental regulations promulgated by any Governmental Authority, and (d) such other imperfections in title, charges, easements, restrictions, and encumbrances that do not materially detract from the value of, or materially interfere with the present use of, the applicable property.
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority, or any other entity.
"PrismLens" means the Company's analytics plugin suite known as "PrismLens," including all related software, source code, object code, documentation, user manuals, training materials, and derivative works thereof.
"Pro Rata Share" means, with respect to Eberhardt, fifty-five percent (55%), and with respect to Messina, forty-five percent (45%).
"Representatives" means, with respect to any Person, such Person's officers, directors, managers, members, employees, agents, advisors, attorneys, accountants, consultants, and other representatives.
"Retention Condition" has the meaning set forth in Section 2.8(e).
"Sellers" and "Seller" have the meanings set forth in the preamble hereto.
"Special Indemnity Matters" has the meaning set forth in Section 8.2(c).
"Surviving Entity" means Merger Sub, as the surviving entity of the Merger, continuing as a Delaware limited liability company.
"Target Net Working Capital" means .
"Tax" or "Taxes" means all federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value-added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not, and including any obligation to indemnify or otherwise assume or succeed to the Tax liability of any other Person.
"Tax Return" means any return, declaration, report, claim for refund, information return, or statement relating to Taxes, including any schedule or attachment thereto and any amendment thereof.
"Transaction Expenses" means all fees, costs, and expenses incurred by or on behalf of the Company or any Seller in connection with the negotiation, preparation, execution, and performance of this Agreement and the consummation of the transactions contemplated hereby, including all legal, accounting, financial advisory, consulting, and other fees and expenses.
"Working Capital Collar" means .
Section 1.2 — Interpretation
For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:
(a) The words "hereof," "herein," "hereunder," "hereby," and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(b) The terms defined in the singular have a comparable meaning when used in the plural, and vice versa.
(c) The term "including" (and correlative terms such as "include" and "includes") means "including without limitation."
(d) References to "$" or "dollars" mean United States dollars.
(e) References to "days" mean calendar days unless the term "Business Days" is used.
(f) References to any statute are to that statute as amended from time to time and to the rules and regulations promulgated thereunder.
(g) References to any contract or agreement are to that contract or agreement as amended, modified, supplemented, or restated from time to time in accordance with the terms thereof.
(h) References to any Person include such Person's successors and permitted assigns.
(i) Article, Section, Exhibit, and Schedule references are to this Agreement unless otherwise stated.
(j) The headings and captions contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement, and shall not be referred to in connection with the construction or interpretation of this Agreement.
(k) No provision of this Agreement shall be interpreted in favor of, or against, any Party by reason of the extent to which such Party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft of this Agreement or such provision.
(l) All accounting terms used in this Agreement and not expressly defined herein shall have the meanings assigned to them in accordance with GAAP.
ARTICLE II — THE MERGER; CONSIDERATION; CLOSING
Section 2.1 — The Merger
Upon the terms and subject to the conditions of this Agreement, and in accordance with Section 18-209 of the DLLCA, at the Effective Time, the Company shall be merged with and into Merger Sub. As a result of the Merger, the separate existence of the Company shall cease at the Effective Time, and Merger Sub shall continue as the surviving entity of the Merger (the "Surviving Entity") under the laws of the State of Delaware. The Surviving Entity shall continue as a Delaware limited liability company and a wholly owned subsidiary of Buyer following the Effective Time. The Merger shall have the effects specified in Section 18-209(g) of the DLLCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all of the properties, rights, privileges, immunities, powers, and franchises of the Company and Merger Sub shall vest in the Surviving Entity, and all debts, liabilities, obligations, and duties of the Company and Merger Sub shall become the debts, liabilities, obligations, and duties of the Surviving Entity.
Section 2.2 — Effective Time
On the Closing Date, the Parties shall cause the Certificate of Merger, substantially in the form attached hereto as Exhibit D, to be duly executed and filed with the Secretary of State of the State of Delaware in accordance with Section 18-209 of the DLLCA. The Merger shall become effective at the time of such filing or at such later time as may be agreed upon by the Parties and specified in the Certificate of Merger (the "Effective Time").
Section 2.3 — Organizational Documents of the Surviving Entity
(a) The limited liability company agreement of Merger Sub as in effect immediately prior to the Effective Time shall be the limited liability company agreement of the Surviving Entity as of and following the Effective Time, until thereafter duly amended in accordance with its terms and applicable law.
(b) The certificate of formation of Merger Sub as in effect immediately prior to the Effective Time shall be the certificate of formation of the Surviving Entity as of and following the Effective Time, until thereafter duly amended in accordance with its terms and applicable law.
Section 2.4 — Managers and Officers of the Surviving Entity
The managers and officers of Merger Sub immediately prior to the Effective Time shall be the initial managers and officers of the Surviving Entity as of and following the Effective Time, each to hold office in accordance with the provisions of the limited liability company agreement of the Surviving Entity and applicable law.
Section 2.5 — Effect of the Merger on Membership Interests
(a) Conversion of Company Membership Interests. At the Effective Time, each Membership Interest issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of any Party or the holder of such Membership Interest, be converted into the right to receive, with respect to each such membership unit:
(i) such unit's pro rata portion of the Closing Cash Consideration (as adjusted pursuant to Section 2.7), less such unit's pro rata portion of the Escrow Amount; and
(ii) such unit's pro rata portion of the Earnout Consideration, if any, payable in accordance with Section 2.8.
Without limiting the foregoing, the allocation of the Closing Cash Consideration, Escrow Amount, and maximum Earnout Consideration among the Sellers shall be as follows:
(A) Eberhardt (550 units; 55%): Pro Rata Share of Closing Cash Consideration = $5,775,000; less Pro Rata Share of Escrow Amount = $2,475,000; net cash payable at Closing = $3,300,000; plus Pro Rata Share of maximum Earnout Consideration = $2,475,000; aggregate maximum total consideration = $8,250,000.
(B) Messina (450 units; 45%): Pro Rata Share of Closing Cash Consideration = $4,725,000; less Pro Rata Share of Escrow Amount = $2,025,000; net cash payable at Closing = $2,700,000; plus Pro Rata Share of maximum Earnout Consideration = $2,025,000; aggregate maximum total consideration = $6,750,000.
(b) Cancellation of Company Membership Interests. At the Effective Time, all Membership Interests shall be cancelled and shall cease to exist, and the holders thereof shall have no further rights with respect thereto, except for the right to receive the consideration set forth in Section 2.5(a) in accordance with the terms and conditions of this Agreement.
(c) Merger Sub Membership Interests. The membership interests of Merger Sub issued and outstanding immediately prior to the Effective Time shall remain outstanding and shall not be affected by the Merger, and such membership interests shall constitute the sole outstanding membership interests of the Surviving Entity, wholly owned by Buyer.
Section 2.6 — Closing
(a) Closing Date. The Closing shall take place remotely via the electronic exchange of documents and signatures on the third (3rd) Business Day following the satisfaction or waiver of all conditions to the Closing set forth in Article VI (other than those conditions which by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), or on such other date as Buyer and the Sellers may mutually agree in writing (such date, the "Closing Date"). The Closing shall be deemed effective as of 12:01 a.m. Eastern Time on the Closing Date, except as otherwise provided herein.
(b) Closing Payments. At the Closing:
(i) Buyer shall pay, or cause to be paid, to each Seller such Seller's Pro Rata Share of the Closing Cash Consideration, less such Seller's Pro Rata Share of the Escrow Amount, by wire transfer of immediately available funds to the bank accounts designated by each Seller in writing at least three (3) Business Days prior to the Closing Date. Specifically, Buyer shall pay: (A) Three Million Three Hundred Thousand Dollars ($3,300,000) to Eberhardt; and (B) Two Million Seven Hundred Thousand Dollars ($2,700,000) to Messina (totaling Six Million Dollars ($6,000,000) in the aggregate to the Sellers at Closing).
(ii) Buyer shall deposit, or cause to be deposited, the Escrow Amount of Four Million Five Hundred Thousand Dollars ($4,500,000) with the Escrow Agent by wire transfer of immediately available funds, to be held and distributed in accordance with the terms and conditions of the Escrow Agreement.
(iii) The Parties shall make and cause to be made the deliveries specified in Sections 2.6(c) through 2.6(e).
(c) Buyer Closing Deliverables. At the Closing, Buyer shall deliver, or cause to be delivered, to the Sellers (or the Escrow Agent, as applicable) the following:
(i) a counterpart of the Escrow Agreement, duly executed by Buyer and the Escrow Agent;
(ii) a counterpart of each Employment Agreement, duly executed by the Surviving Entity;
(iii) a certificate of an officer of Buyer, dated as of the Closing Date, certifying (A) that the representations and warranties of Buyer and Merger Sub contained in Article IV are true and correct in all material respects as of the Closing Date, and (B) that Buyer and Merger Sub have performed and complied in all material respects with all covenants and agreements to be performed by them prior to the Closing;
(iv) a certificate of the Secretary or Assistant Secretary of Buyer, dated as of the Closing Date, certifying (A) attached copies of the certificate of incorporation and bylaws of Buyer, as in effect on the Closing Date, (B) the resolutions of the Board of Directors of Buyer authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (including confirmation that at least one (1) director designated by Ridgeline Capital Partners, LP voted in favor of such resolutions), and (C) the incumbency of the officers of Buyer executing this Agreement and the ancillary documents;
(v) certificates of good standing of each of Buyer and Merger Sub issued by the Secretary of State of the State of Delaware, dated within ten (10) Business Days of the Closing Date;
(vi) a legal opinion of Calderwood & Harkness LLP, counsel to Buyer and Merger Sub, dated as of the Closing Date, in form and substance reasonably satisfactory to the Sellers, addressing the due organization, authority, enforceability, and non-contravention matters customary for transactions of this type;
(vii) evidence, in form and substance reasonably satisfactory to the Sellers, that Buyer has obtained the consent of Linden Grove National Bank under the Revolving Credit Agreement dated September 15, 2022, as required for permitted acquisitions thereunder;
(viii) a funds flow memorandum, in form reasonably agreed to by the Parties, setting forth the wire instructions and allocation of all payments to be made at or in connection with the Closing
(d) Seller Closing Deliverables. At the Closing, the Sellers shall deliver, or cause to be delivered, to Buyer the following:
(i) a counterpart of the Escrow Agreement, duly executed by each Seller;
(ii) a counterpart of each Employment Agreement, duly executed by the applicable Seller;
(iii) a certificate of the Sellers, dated as of the Closing Date, certifying (A) that the representations and warranties of the Sellers contained in Article III are true and correct in all material respects (or, with respect to representations qualified by materiality or Material Adverse Effect, in all respects) as of the Closing Date, and (B) that the Sellers have performed and complied in all material respects with all covenants and agreements to be performed by them prior to the Closing;
(iv) a certificate of the Secretary or an authorized manager of the Company, dated as of the Closing Date, certifying (A) attached copies of the certificate of formation and the Company LLC Agreement, as in effect on the Closing Date, (B) the resolutions or written consent of the members of the Company authorizing the execution and delivery of this Agreement and the consummation of the Merger, and (C) the incumbency of the officers or managers of the Company executing this Agreement and the ancillary documents;
(v) a certificate of good standing of the Company issued by the Secretary of State of the State of Delaware, dated within ten (10) Business Days of the Closing Date;
(vi) a FIRPTA certificate from each Seller, substantially in the form attached hereto as Exhibit C, certifying that such Seller is a "United States person" within the meaning of Section 7701(a)(30) of the Code, such that FIRPTA withholding is not applicable;
(vii) a legal opinion of Cartwright, Daugherty & Voss LLP, counsel to the Sellers and the Company, dated as of the Closing Date, in form and substance reasonably satisfactory to Buyer, addressing the due organization of the Company, authority, enforceability, capitalization, and non-contravention matters customary for transactions of this type;
(viii) payoff letters from each holder of Indebtedness of the Company outstanding as of the Closing Date (if applicable), in form and substance reasonably satisfactory to Buyer, together with evidence of release of all related Liens;
(ix) evidence, in form and substance reasonably satisfactory to Buyer, that the Ardent Consent has been obtained in connection with the change of control of the Company under the Ardent SaaS Agreement;
(x) the written consent of all members of the Company (Eberhardt and Messina) approving the Merger and the transactions contemplated by this Agreement, in form and substance reasonably satisfactory to Buyer;
(xi) evidence, in form and substance reasonably satisfactory to Buyer, that all other third-party consents required as set forth on Schedule 3.5 have been obtained; and
(xii) the Estimated Closing Statement delivered in accordance with Section 2.7(b).
(e) Joint Deliverables. At the Closing, the Parties shall jointly execute and deliver, or cause to be executed and delivered, the Certificate of Merger, substantially in the form attached hereto as Exhibit D, for filing with the Secretary of State of the State of Delaware.
Section 2.7 — Working Capital Adjustment
(a) Target Net Working Capital. The Target Net Working Capital is . As used in this Agreement, "Net Working Capital" means the current assets of the Company minus the current liabilities of the Company, in each case determined in accordance with GAAP applied consistently with the Company's past practice, as of 11:59 p.m. Eastern Time on the day immediately preceding the Closing Date, and calculated in a manner consistent with the methodology set forth on Schedule 2.7(a); provided, however, that Net Working Capital shall exclude any cash and cash equivalents, any Indebtedness, and any Transaction Expenses.
(b) Estimated Closing Statement. Not later than three (3) Business Days prior to the Closing Date, the Company shall prepare and deliver to Buyer a written statement (the "Estimated Closing Statement") setting forth the Company's good faith estimate of Net Working Capital as of the anticipated Closing Date (the "Estimated Net Working Capital"), together with reasonable supporting documentation. The Estimated Closing Statement shall be prepared in accordance with GAAP applied consistently with the Company's past practice and the methodology described in Section 2.7(a). Buyer and its Representatives shall have the right to review and comment on the Estimated Closing Statement prior to the Closing, and the Company shall consider such comments in good faith; provided, however, that no adjustment to the Closing Cash Consideration shall be made at the Closing based on the Estimated Closing Statement unless the Estimated Net Working Capital differs from the Target Net Working Capital by more than the Working Capital Collar.
(c) Post-Closing Adjustment. Within days after the Closing Date, Buyer shall prepare and deliver to the Sellers a written statement (the "Closing Statement") setting forth Buyer's determination of the Actual Closing Net Working Capital, prepared in accordance with GAAP applied consistently with the Company's past practice and the methodology described in Section 2.7(a). Buyer shall provide the Sellers and their Representatives with reasonable access to the books and records and relevant work papers used in preparing the Closing Statement.
(d) Review Period. The Sellers shall have a period of thirty (30) days after receipt of the Closing Statement (the "Review Period") within which to review the Closing Statement and Buyer's determination of Actual Closing Net Working Capital. If the Sellers disagree with Buyer's determination, the Sellers shall, prior to the expiration of the Review Period, deliver to Buyer a written notice of dispute (the "Dispute Notice"), setting forth in reasonable detail the items and amounts in dispute and the Sellers' proposed determination of Actual Closing Net Working Capital. If the Sellers do not deliver a Dispute Notice within the Review Period, the Closing Statement as prepared by Buyer shall be deemed final and binding on the Parties. If the Sellers deliver a timely Dispute Notice, the Parties shall attempt in good faith to resolve the dispute within fifteen (15) days after Buyer's receipt of the Dispute Notice. If the Parties are unable to resolve the dispute within such fifteen (15)-day period, the remaining items in dispute shall be submitted to the Accounting Referee for resolution. The Accounting Referee shall determine only those items and amounts in dispute and shall render a written determination within thirty (30) days after the submission, which determination shall be final and binding on the Parties. The Accounting Referee shall not assign a value to any item in dispute that is greater than the highest value claimed by either Party or less than the lowest value claimed by either Party with respect to such item. The fees and expenses of the Accounting Referee shall be borne by the Party whose position is farther from the Accounting Referee's final determination, or, if both Parties' positions are equidistant, such fees shall be borne equally by the Parties.
(e) Adjustment Payment.
(i) If the Actual Closing Net Working Capital (as finally determined pursuant to this Section 2.7) exceeds the Target Net Working Capital by more than the Working Capital Collar (i.e., by more than ), then Buyer shall pay to the Sellers (in accordance with each Seller's Pro Rata Share) the amount by which the Actual Closing Net Working Capital exceeds the Target Net Working Capital, on a dollar-for-dollar basis.
(ii) If the Target Net Working Capital exceeds the Actual Closing Net Working Capital (as finally determined pursuant to this Section 2.7) by more than the Working Capital Collar (i.e., by more than ), then the Sellers shall pay to Buyer (in accordance with each Seller's Pro Rata Share) the amount by which the Target Net Working Capital exceeds the Actual Closing Net Working Capital, on a dollar-for-dollar basis. Any such payment owed by the Sellers may, at Buyer's election, first be satisfied from the Escrow Amount.
(iii) If the difference between the Actual Closing Net Working Capital and the Target Net Working Capital is less than or equal to (whether positive or negative), no adjustment shall be made.
(iv) Any payment required pursuant to this Section 2.7(e) shall be made by wire transfer of immediately available funds within five (5) Business Days after the final determination of Actual Closing Net Working Capital.
Section 2.8 — Earnout Consideration
(a) Aggregate Earnout. In addition to the Closing Cash Consideration, the Sellers shall be eligible to receive up to an aggregate of Four Million Five Hundred Thousand Dollars ($4,500,000) in earnout payments (the "Earnout Consideration"), subject to and in accordance with this Section 2.8. The Earnout Consideration shall be allocated among the Sellers in accordance with their respective Pro Rata Shares.
(b) Earnout Tranches. The Earnout Consideration shall be payable in two (2) tranches, as follows:
(i) Earnout Tranche 1. If, during Earnout Period 1 (commencing on the Closing Date and ending on the date that is months following the Closing Date), PrismLens Net New ARR equals or exceeds , then Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) shall be payable to the Sellers, allocated as follows: Eberhardt: One Million Two Hundred Thirty-Seven Thousand Five Hundred Dollars ($1,237,500); Messina: One Million Twelve Thousand Five Hundred Dollars ($1,012,500). Such amounts shall be subject to the pro rata interpolation provisions of Section 2.8(d) and the Retention Condition set forth in Section 2.8(e).
(ii) Earnout Tranche 2. If, during the period commencing on the Closing Date and ending on the last day of Earnout Period 2 (i.e., the date that is months following the Closing Date), cumulative PrismLens Net New ARR equals or exceeds , then an additional Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) shall be payable to the Sellers, allocated as follows: Eberhardt: One Million Two Hundred Thirty-Seven Thousand Five Hundred Dollars ($1,237,500); Messina: One Million Twelve Thousand Five Hundred Dollars ($1,012,500). Such amounts shall be subject to the pro rata interpolation provisions of Section 2.8(d) and the Retention Condition set forth in Section 2.8(e). For the avoidance of doubt, Net New ARR credited toward Earnout Tranche 1 shall also be counted toward the cumulative milestone for Earnout Tranche 2.
(c) Calculation of Net New ARR. "Net New ARR" shall mean the net new annual recurring revenue generated by the PrismLens product suite during the applicable measurement period, calculated as follows: (A) new subscription revenue from new customers (i.e., customers that were not paying subscribers of PrismLens as of the Closing Date); plus (B) expansion revenue from existing customers (i.e., incremental annual recurring subscription revenue attributable to upsells, cross-sells, or increased usage by customers that were paying subscribers of PrismLens as of the Closing Date); less (C) churned revenue from lost or downgraded customers (i.e., the reduction in annual recurring subscription revenue attributable to customers that cancelled their PrismLens subscriptions or reduced their subscription levels during the applicable measurement period), in each case determined in accordance with Buyer's standard revenue recognition policies as applied consistently throughout the applicable Earnout Period. For the avoidance of doubt, Net New ARR shall be calculated on a net basis and shall not include one-time implementation, professional services, or non-recurring revenue. Buyer shall prepare and deliver to the Sellers a written statement setting forth Net New ARR for each Earnout Period (each, an "Earnout Statement") within forty-five (45) days after the end of the applicable Earnout Period. The Sellers shall have thirty (30) days following receipt of each Earnout Statement to review and dispute Buyer's determination in writing. If the Sellers deliver a timely written objection, the Parties shall attempt to resolve the dispute within fifteen (15) days, and any remaining unresolved items shall be submitted to the Accounting Referee, whose determination shall be final and binding.
(d) Pro Rata Interpolation. If, with respect to any Earnout Period, the applicable Net New ARR milestone is not fully achieved but achievement equals or exceeds of the applicable milestone target, then the applicable earnout tranche shall be payable on a pro rata linear interpolation basis, determined as follows:
(i) At achievement of the applicable milestone target, fifty percent (50%) of the applicable earnout tranche shall be payable.
(ii) At one hundred percent (100%) achievement of the applicable milestone target, one hundred percent (100%) of the applicable earnout tranche shall be payable.
(iii) Between and one hundred percent (100%) achievement, the portion of the applicable earnout tranche payable shall be calculated using straight-line linear interpolation between the 50% payout at achievement and the 100% payout at 100% achievement. By way of illustration, at achievement of the applicable milestone target, 75% of the applicable earnout tranche would be payable.
(iv) If achievement is less than of the applicable milestone target, no portion of the applicable earnout tranche shall be payable.
(e) Retention Condition. Payment of each Seller's Pro Rata Share of the applicable Earnout Consideration for any Earnout Period shall be contingent upon such Seller remaining continuously employed by Buyer or any of its Subsidiaries (including the Surviving Entity) through the last day of the applicable Earnout Period (the "Retention Condition"). If a Seller's employment is terminated by Buyer (or its applicable Subsidiary) without Cause (each as defined in the applicable Employment Agreement), the Retention Condition shall be deemed satisfied with respect to such Seller for all remaining Earnout Periods. If a Seller's employment terminates for any other reason (including voluntary resignation without Good Reason or termination for Cause), such Seller shall forfeit the right to receive any unpaid Earnout Consideration for any Earnout Period that has not yet concluded as of the date of such termination; provided, that the forfeiting Seller's share of such unpaid Earnout Consideration shall not be reallocated to the other Seller but shall instead be retained by Buyer.
(f) Payment Timing. Any Earnout Consideration earned with respect to an Earnout Period shall be paid within fifteen (15) days following the final determination of Net New ARR for the applicable Earnout Period (including the resolution of any dispute in accordance with Section 2.8(c)), by wire transfer of immediately available funds to the bank accounts previously designated by each Seller.
(g) Buyer's Obligations Regarding PrismLens Business. During each Earnout Period, Buyer shall (i) operate the PrismLens business in good faith and in the ordinary course of business, (ii) provide reasonable resources and support for the PrismLens product line consistent with Buyer's business plans as in effect from time to time, and not take any action in bad faith for the primary purpose of reducing or avoiding payment of the Earnout Consideration. For the avoidance of doubt, Buyer shall have full discretion to operate its business and the PrismLens business in its sole judgment, including with respect to pricing, product development, sales strategy, personnel, and organizational structure, subject to the foregoing covenant of good faith. The Parties acknowledge and agree that Buyer's exercise of reasonable business judgment shall not constitute a breach of this Section 2.8(g), even if such actions have the effect of reducing Net New ARR.
(h) No Acceleration. Earnout Consideration shall not be accelerated for any reason, including upon a change of control of Buyer or the sale of the PrismLens business.
ARTICLE III — REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller, and warrants to Buyer and Merger Sub as of the date hereof and as of the Closing Date (except for representations and warranties that speak as of a specific date, which shall be made as of such date), except as set forth in the corresponding section or subsection of the Disclosure Schedules delivered by the Sellers to Buyer concurrently with the execution and delivery of this Agreement (it being understood that any matter disclosed in any section or subsection of the Disclosure Schedules shall be deemed to be disclosed with respect to any other section or subsection of the Disclosure Schedules to the extent the relevance of such disclosure to such other section or subsection is reasonably apparent on the face of such disclosure), as follows:
Section 3.1 — Organization and Good Standing
The Company is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware. The Company has all requisite limited liability company power and authority to own, lease, and operate its properties and to carry on its business as presently conducted. The Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing, or operation of its properties makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The jurisdictions in which the Company is qualified to do business include the Commonwealth of Pennsylvania. The Company's registered agent in the State of Delaware is Capitol Registered Agents, Inc., 1209 Orange Street, Wilmington, Delaware 19801. The Company's principal place of business is located at 1414 Walnut Street, Suite 310, Philadelphia, Pennsylvania 19102. The Company has delivered or made available to Buyer true, correct, and complete copies of the certificate of formation and the Company LLC Agreement, each as currently in effect. The Company does not own, directly or indirectly, any equity interest in any other Person and does not have any Subsidiaries.
Section 3.2 — Authority; Enforceability
The Company has all necessary limited liability company power and authority to execute and deliver this Agreement and each ancillary agreement to which it is or will be a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. Each Seller has the legal capacity and all necessary power and authority to execute and deliver this Agreement and each ancillary agreement to which such Seller is or will be a party, to perform such Seller's obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance of this Agreement and the ancillary agreements by the Company and each Seller, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary limited liability company action on the part of the Company, including the unanimous written consent of all members of the Company. This Agreement has been duly executed and delivered by the Company and each Seller and constitutes a legal, valid, and binding obligation of the Company and each Seller, enforceable against the Company and each Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and similar laws affecting creditors' rights and remedies generally and to general principles of equity (whether applied in a proceeding at law or in equity) (collectively, the "Enforceability Exceptions").
Section 3.3 — Capitalization
The entire membership interest in the Company consists of one thousand (1,000) membership units. Eberhardt owns five hundred fifty (550) membership units, representing fifty-five percent (55%) of the total outstanding membership interests of the Company. Messina owns four hundred fifty (450) membership units, representing forty-five percent (45%) of the total outstanding membership interests of the Company. The Membership Interests constitute all of the issued and outstanding equity interests of the Company. Schedule 3.3 sets forth a true, correct, and complete list of all membership interests of the Company and the record and beneficial owners thereof. There are no outstanding options, warrants, convertible or exchangeable securities, phantom equity, profit participation rights, stock appreciation rights, or other rights, agreements, arrangements, or commitments of any character obligating the Company to issue, sell, or otherwise dispose of, or relating to the issuance, sale, or other disposition of, any equity interests of the Company. There are no outstanding contractual obligations of the Company to repurchase, redeem, or otherwise acquire any of the Membership Interests. There are no voting trusts, proxies, membership agreements, or other agreements or understandings in effect with respect to the voting, transfer, or other disposition of the Membership Interests.
Section 3.4 — Title to Membership Interests
Each Seller is the record and beneficial owner of, and has good and valid title to, such Seller's Membership Interests as set forth in Schedule 3.3, free and clear of all Liens, other than Permitted Liens and restrictions on transfer under the Company LLC Agreement, the DLLCA, and applicable federal and state securities laws. Upon consummation of the Merger, the Membership Interests will be converted into the right to receive the consideration as set forth in Section 2.5, and no Person other than the Sellers has any right, title, or interest in or to any of the Membership Interests or any right to receive any portion of the consideration payable in connection with the Merger.
Section 3.5 — No Conflicts; Consents
(a) The execution, delivery, and performance by the Company and each Seller of this Agreement and the ancillary agreements, and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) conflict with, or result in a violation or breach of, any provision of the certificate of formation or Company LLC Agreement, (ii) conflict with, or result in a violation or breach of, any applicable law, Order, or governmental regulation applicable to the Company or any Seller, or (iii) conflict with, result in a violation or breach of, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under, any Material Contract or other contract, agreement, instrument, permit, or license to which the Company or any Seller is a party or by which the Company or any of its assets are bound, except, in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults, accelerations, rights, or notices that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.